Cost Control Lifts Servicing Income.(Brief Article)

By holding down direct costs and taking advantage of low portfolio turnover, mortgage lenders were able to increase their loan-servicing profitability last year, according to a study conducted by the Mortgage Bankers Association of America.

Industry-wide, direct servicing costs averaged $71 per loan last year, consistent with the 1999 figure. The largest lenders incurred the lowest direct costs at $65 per loan, while lenders in the study with fewer than 150,000 loans reported direct expenses of $101 per loan.

Revenue increased to $465 per loan at the average firm last year, up from $425 per loan in 1999. The largest lenders, those servicing at least 1.5 million loans, generated the most revenue - an average of $498 per loan.

Small and mid-sized lenders posted revenue of between $314 and $474 per loan, according to the study, which broke down the 28 participants into five groups.

Net-operating income, which excludes amortization of servicing rights and excess servicing, impairment, gains or losses from hedging and the sale of servicing rights, rose to $299 per loan from $253 in 1999 for all lenders in the survey - an 18% increase from 1999.

Doug Duncan, the MBA's chief economist, said loan servicers benefited from low portfolio churning last year, with refinancing accounting for just 19% of loan originations.

That story is likely to change when profits are tallied for this year. The MBA currently estimates that refinancing, which accounted for more than half of loan originations in the first half of this year, will total 43% of originations for the whole year.